I Bonds offer guard against inflation, not speedy wealth

Sunday

Aug 31, 2008 at 12:01 AMAug 31, 2008 at 9:51 AM

Q: What are the advantages and disadvantages of I Bonds?

Q: What are the advantages and disadvantages of I Bonds?

-- J.J., Portland, Maine

A: I Bonds are savings bonds offered by the federal government, with interest payments adjusted to keep up with inflation. They're attractive because of their limited risk (the U.S. government isn't likely to leave town overnight), tax advantages (you're taxed on their interest only when you cash them in), small investment amounts (as little as $50), and protection against inflation. Interest can even be taken entirely tax-free, if it's used for educational expenses.

On the downside, you'll lose some moolah if you cash out early (within five years), and over the long haul, money tends to grow much faster in stocks than in bonds. In fact, long-term money can grow twice as rapidly in stocks. According to Ibbotson Associates, between 1925 and 2004, stocks grew at an annual average rate of more than 10 percent, while bonds grew between about 4 percent and 5 percent.

I Bonds can protect your money, but they're not likely to make you rich. Learn more about bonds at www.bondsonline.com and www.investinginbonds.com. Note that some corporations, such as Sallie Mae, Fannie Mae, HSBC and Protective Life, also have issued inflation-adjusted bonds.

Q: How can I find out if my former employer is covered by the Pension Benefit Guaranty Corp.?

-- P.S., Seattle

A: The Pension Benefit Guaranty Corp. is a federal agency that protects pension benefits in private traditional pension plans -- but not defined-contribution plans, such as 401(k)s. Note that if the agency takes over your employer's pension plan, you might receive reduced benefits, because it doesn't cover health and wellness benefits, for example. Learn more at www.pbgc.gov or by calling 202-326-4000.

Fool's school: Reducing the risks in trading stocks

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If you're holding on for years, you can ride out downturns. If you plan to sell in 10 or 20 years, then what happens this year isn't a big risk to you.

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Foolish trivia

Formed when China's Legend Holdings merged with IBM's personal-computer business in 2005, I'm now one of the world's largest makers of PCs, with annual revenue topping $16 billion. (The IBM division introduced its first portable PC in 1984; it weighed 30 pounds.) I have no world headquarters and, instead, have a distributed management structure with operational hubs in Beijing, Raleigh, N.C., Singapore and Paris, a marketing hub in Bangalore, India, and research centers in China and the U.S. My name includes the Latin word for new. I hold more than 2,000 patents. Who am I?

Last week's trivia question: Founded in 1623 by an Armenian in the Near East, I'm the oldest continually family-owned business in America. I moved to Massachusetts in the 1900s, and I make and market musical instruments. (My secret manufacturing process involves tin, copper and silver.) Jazz kept me going in the Depression, when I worked on "hi-hat," "low-sock" and "hi-sock" versions of my flagship product. Later came "Bop-Rides," "Pings" and "Sizzles." Satisfied customers have included Gene Krupa, Max Roach, Ringo Starr and Keith Moon. I'm still the top name in my field and remain a privately held company.

Answer: Zildjian

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